Personal
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Looking at family wealth through a similar lens can be instructive. Treating your wealth as a business, with the same cadence, infrastructure and strategic approach, can help you achieve your wealth goals and objectives.
First, though, you may need to overcome some mental hurdles.
Business owners are used to being in charge—but they may not feel the same level of control in managing their personal wealth as they do in running a business, which can be unsettling.
If you're a business owner who can relate, consider framing wealth in the language of business in order to see that you’re still at the helm.
“What do we want our wealth to do? We make a living by
what we get, we make a life by what we give."
Winston Churchill
Business Principle #1: Start with values, vision and mission
Before you get down to brass tacks, you need to tease out what matters most to you and your family: your values, vision and mission. In other words, what are your family’s goals and objectives? What does success, happiness and legacy mean to you and your family? Your answers to these questions should serve as your guiding principles behind decisions related to investing, philanthropy and wealth transfer.
This goal-oriented approach is likely similar to the process you underwent when you first launched your business. The more concrete and measurable you can make your vision and mission, the easier it will be to judge your progress. Everything else flows from this foundation.
Once you've agreed upon and articulated what you'd like to achieve as a family, it's time to develop a family blueprint. A family blueprint begins by describing the goals and objectives, values, vision and mission of your family. It also incorporates the family tree, family entities, as well as family members’ roles and responsibilities.
Next, delve deeper by spelling out an inventory of family assets and their corresponding owners. A family blueprint should present the family balance sheet by outlining assets includible and non-includible in the estate, cash flow, tax projections and a plan for estate disposition. Your blueprint can be an evolving vehicle to measure strategic success.
Business Principle #2: Assemble the right team
Talent is the backbone of success: Businesses are only as good as the talent they attract and retain. You can think of managing your personal wealth in similar terms.
If you consider yourself the head of the family, you might cast yourself in the role of president and chief executive officer: You are the person who takes a big-picture view of your family’s overall wealth.
Next, seek out a "chief investment officer" to oversee investments and conduct due diligence and research on them. A "chief financial officer" and "chief operations officer" for the family's assets can take responsibility for putting together a reporting platform and providing regular status reports. These people make sure that the operations of the family wealth run smoothly.
You might need to add additional roles depending on your family’s needs. For example, some families may need a "communications officer" or a "chief learning officer" for coordinating family meetings or financial training, respectively.
Naturally, not every family has all the skillsets among its own members to manage their wealth most effectively. If this is the case, do what any savvy business owner would do in that situation: hire non-family members or outsource. Seek out professionals who have the expertise to allow you to build the best team.
Business Principle #3: Discover and cultivate your family's philanthropic identity
More businesses today are tying their philanthropic and impact investment activities to their corporate mission. You might feel similarly about aligning your personal philanthropic endeavors with your own mission and vision. To do that, consider developing a strategic overview document covering your future philanthropic and impact investment intent, in order to guide others in carrying out your wishes now and beyond your lifetime.
When done correctly, philanthropic planning can help your family answer the question: “What outcomes we want our wealth to change in our community/world?” For many families, philanthropy and impact investment becomes such a big part of their identity that it takes on a life of its own, with some families even choosing to form a philanthropic entity to meet these objectives.
A philanthropic entity can have businesslike qualities and can offer a powerful way for a family to express their values across future generations.
The philanthropic vehicle or vehicles that best suit you will depend on the mission, goals and values that you set earlier—in addition to your other financial, tax and estate planning needs. Input from your advisory team can help make sure your philanthropic endeavors align with all these considerations.
Do you have a risk mitigation plan?
We all like to hope for the best, but planning for the worst is just common sense. That’s why businesses use commercial insurance, life insurance and hedging instruments to mitigate the risks they face.
For your personal wealth, rather than insuring equipment and inventory, consider insuring assets that are more personal in nature: Think homes instead of production plants, or cars, boats and planes instead of equipment.
You'll also want to consider robust property and casualty, life, cybersecurity and kidnap/ransom insurance to cover the major risks that families of wealth may encounter. In addition, consider using insurance to provide for potential tax liabilities; taxes can be one of the biggest risks to asset preservation for future generations.
Make sure to have sufficient life insurance so your heirs have the necessary liquidity they’ll need to pay estate taxes. This will help them avoid having to sell illiquid assets—possibly at a discount—to cover taxes.
Lastly, think about succession risk. Just as a business needs to plan for the continuity of its leadership and operation in the event of the retirement, illness or death of its owner, a family must make a roadmap for how its wealth will be managed after the passing of the senior generation.
Final thoughts
Of course, there are some cases where the metaphor of treating your family wealth like a business won't hold; for example, family wealth won't center on the next big product launch. Yet overall, the approach can still be highly effective in helping you achieve your objectives and increase the chances of success for the next generation.
By couching your wealth in business terms, you can see the many similarities and how to approach your wealth in a similar way. Connect with a team that has experience in working with wealth owners, so you can put all the pieces in place.
Feel confident about your future
BMO Wealth Management—its professionals, its disciplined approach, its comprehensive and innovative advisory platform—can help financial peace of mind. For greater confidence in your future, call your BMO Wealth Management Advisor today.
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